Illness insurance

Table of contents

What is illness insurance?

Illness insurance protects your income if you are unable to work because of an accident, long-term ill health or disability.

There are several different kinds of illness insurance. Some pay out a single lump sum, some will pay out a regular monthly income, while others will cover payments for specific things, such as your mortgage or credit card payments.

On this page we explain why you might want to think about taking out illness insurance. You can find out about the different types of illness insurance available, some of the benefits they provide and what you need to think about before taking out one of these types of policy.

You can find more detailed information about some of the different types of illness insurance described here on other Adviceguide pages.

Why take out illness insurance

If you can’t work because of illness, accident or a disability, you may be able to get state benefits or sick pay from your employer if you’re unable to work. However, these may not cover all your needs.

You might find relying on state benefits or sick pay alone would leave you with a much lower standard of living than you are currently used to. You might also find that you don’t have enough money to pay off any loans you may have taken out or to keep up the re-payments on your mortgage. You could find yourself falling into debt and could lose your home, be taken to court by people you owe money to or even be made bankrupt.

Even if you can get state benefits or sick pay from your employer, it might be worth thinking about taking out one or more of the types of illness insurance as well, to boost your income. However, most types of illness insurance do have drawbacks and limitations which you need to look out for.

State benefits

State benefits such as Statutory Sick Pay (SSP) and Employment and Support Allowance (ESA) pay a very low rate of income. There are other restrictions too. SSP only pays out for a limited period of time, while for ESA you may have to undergo regular medical assessments and it can be stopped if you don’t pass them.

It’s worth checking how much money you would get if you had to rely only on state benefits and comparing this with how much you think you would need to live on.

To get an estimate of how much benefit you might get, use the Benefits Adviser on the Directgov website at: www.direct.gov.uk.

Employer’s sick pay and pension

Your employer may pay you Contractual Sick Pay. This is also called enhanced sick pay and it means that you would get all or part of your regular salary for a set period of time if you can’t work. Contractual Sick Pay can be paid at a lower rate than your normal pay.

Some firms will also pay your pension early if you have to retire early through ill-health, although the amount you get might be less than if you had worked to retirement.

If you’re not sure about what benefits you’re entitled to from your employer if you are unable to work through ill-health, you should ask them for details.

Self-employed people

Illness insurance can sometimes be a good option if you’re self-employed. This is because you can’t get pay from an employer and there are some state benefits you won’t be able to get either such as Statutory Sick Pay. However, there are some types of illness insurance you may not be able to get if you’re self-employed, so you will need to check policies very carefully before you take one out.

Types of illness insurance

Here are some of the main types of illness insurance available. For more detailed information about these types of insurance, see Further help and information.

Critical illness insurance

This is a kind of illness insurance that pays out a lump sum if you are diagnosed as having a specific illness such as cancer or heart attack. If you have a mortgage you may have been sold critical illness cover when you took out your loan. This is not the same as mortgage payment protection insurance.

Income protection insurance

This is also called permanent health insurance. This is another kind of illness insurance that would pay you an income for the rest of you life or until you reach retirement if you can’t work because of ill-health or disability. You usually have to wait a few weeks or months before payments start.

Payment Protection Insurance

This is a kind of insurance that you take out to cover mortgage, credit card, store card or personal loan payments if you can’t work because of ill health or are made unemployed. You may have to wait a few months before the payments start. They will only cover you for a limited period and usually stop after a certain amount of time.

Mortgage payment protection insurance

This is the same as payment protection insurance but will only cover your mortgage payments.

What to think about before you take out illness insurance

Here are some questions to ask yourself before you take out illness insurance.

Do you really need illness insurance?

You may already have some illness insurance combined with another insurance policy or with your mortgage and not realise it. Check the details of other policies you have to find out what you’re already covered for.

You should also check what benefits your employer pays out if you can’t work because of ill-health or disability.

You might have savings you can use instead of insurance. Savings are a very flexible way to protect yourself against loss of income due to ill-health. This is because if you never need the money, you can always use it for something else later on.

However, there are drawbacks to relying on savings. You may not be able to save enough to cover a long period of ill-health. And you may face another emergency, which would use up your savings and leave you with no cover for illness.

Have you got enough money to pay for illness insurance?

The costs (or premiums) of some illness insurance can be quite high and you may never need to use it. You won’t get any money back if you never make a claim.

Before you take out illness insurance, make sure you’ve got enough money to pay the premiums. If you owe money on loans or other debts, don’t leave yourself too short to pay these off. It’s also important to make sure you’ve got enough money to pay into a pension or for other things you might need in the future.

The best way to see whether you’ve got any money to spare for savings is to work out how much you spend every month and compare it with the money you’ve got coming in. You can use our budgeting sheet to help you do this.

What are the exclusions?

Illness insurance policies don’t always cover every type of illness. For example some illnesses, such as certain common types of cancer, may not be covered if they are in the early stages.

Some illness insurance policies say you have to be extremely ill or totally disabled before you can claim.

You will need to check the insurance policy carefully to see what it will pay out if you become ill.

What’s your health like?

Some illness insurance policies won’t cover you for any medical conditions you already have. If you are in poor health, you may not be able to get illness insurance.

If you do take out an illness insurance policy, make sure you give the insurance company as much information as possible about any medical conditions you have, or have had in the past. This could prevent you paying out insurance premiums for a policy which you won’t be able to make a claim on.

Does your age make a difference?

The older you are, the more you will have to pay to take out illness insurance because there is more chance of you making a claim.

What kind of work do you do?

If you do a dangerous or very physical job, you may find it difficult to get illness insurance or you may have to pay higher costs to be covered.

What kind of hobbies and lifestyle do you have?

If you have any dangerous hobbies or have a lifestyle that may include smoking, heavy drinking or drug taking, you may not be able to get illness insurance. Insurers may not pay out if you don’t tell them beforehand about things that may affect the claim.

Is there a waiting period before you can make a claim?

Many illness insurance policies have a waiting period before you can make a claim. This means that you may not be covered for the first few weeks of your illness or disability. Check how long the waiting period is and think about how you will support yourself during that time. You may be able to get sick pay from your employer or have savings you can use. You may be able to pay less for your insurance if you take out a policy with a longer waiting time. You can arrange illness insurance to start paying out when your other income runs out.